Oct 28, 2019

Luxury bath replaces communal shower

Increasingly more students are studying overseas. This growth is driving the demand for student apartments, also at the higher-end segment of the market. This trend presents opportunities for investors.

  • The number of students worldwide is growing rapidly.
  • Correspondingly high is the demand for suitable student housing.
  • Real estate funds are focusing on this market potential.
5 minutes to read

Designer furniture, luxury bathroom, high-speed internet, fitness studio, cinema, and a dedicated service app: today’s student housing bears little resemblance to the spartan rooms and communal showers of yesteryear. It’s no wonder therefore that demand for these lifestyle objects is, to an extent, soaring. However, suitable apartments for students are scarce − and not just in the high-end segment.[1] Locations with universities are bursting at the seams, and over 2.8 million people are currently studying at German universities.[2] That’s a 40 percent increase in the past ten years, and this number is greater than the combined populations of Hamburg and Düsseldorf.

600 mio.

The number of students forecasts predict worldwide in 2040.

Increasingly more students worldwide

Around the globe, there’s a clear trend toward more university students. Forecasts estimate that by 2040 there will be almost 600 million students worldwide registered at a university or college. Students these days are more mobile than in previous generations. The number of students attending foreign universities has more than doubled in the past decade.[3]

Worldwide, it appears that “comfort is king”. In Great Britain, the demand for the standard student dorm room has dropped by a third since 2012. Simultaneously, demand for top-notch objects has more than doubled.[4] The situation resembles that of Germany: “There’s a high demand for student apartments in Great Britain, but extremely limited availability − especially in the premium segment,” emphasizes Anke Weinreich, who manages the “grundbesitz europa” DWS open-end real estate fund.

Cambridge and Oxford, as well as London, enjoy an excellent reputation internationally as leading science and research sites. Twenty of the country’s top 100 universities are located in the capital.[5] Around 300,000 students are registered at these institutions. Private and university-owned student housing can currently only accommodate 90,000 students, however.[6]

Will Brexit reduce this demand? Probably not, say the experts, “The overall cost of studying in Great Britain tends to be less than in other English-speaking countries such as the U.S., Canada and Australia,” explains Weinreich. The desire for top-notch student accommodation among non-European students, especially those from China, is driving this demand.[7] Chinese students account for almost 60 percent of the demand for student apartments in the prime segment.[7] Something to consider: almost half of the international students hail from China.[8] “Thanks to the growing middle class and rising incomes there, we can expect further growth,” explains the fund manager, adding: “Those who can easily afford to pay a six-figure sum for their children to attend a university won’t be counting pennies when it comes to their comfort or security. The price difference between top-notch accommodation and a standard university dorm room is here of secondary importance.”

What is the proportion of international students at German universities?

Professional investors are bullish on student housing

The growing demand for suitable accommodations and the correspondingly high occupancy rates can make student housing a lucrative long-term investment, especially with regard to rent and growth in asset value.

Professional investors discovered the market's potential quite some time ago. Singapore’s sovereign wealth fund and Canada’s largest pension fund (CPPIB), for example, have invested in student housing properties. The advantages are clear: “Marketable student apartments provide returns comparable to prime office real estate,” says fund manager Weinreich. “The consistently steady demand also means that there is less fluctuation due to economic conditions.”

For investors wanting to profit from this trend, the best choice is an investment fund managed by an experienced team that has analyzed the market and selected the most promising objects. A company such as DWS is ideal, because several of its open-end real estate funds have long included student apartments, and kept a close eye on the locations and features of this real estate.

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1. Source: http://cbre.vo.llnwd.net/grgservices/secure/Student%20Accomodation%20Market%20Report%20Germany%202018.pdf?e=1571256231&h=5b11542c7bea6363529132a424c56927

2. Source: https://www.statista.com/statistics/584061/university-student-numbers-winter-semesters-germany/

3. Source: https://monitor.icef.com/2018/10/study-projects-dramatic-growth-global-higher-education-2040/

4. Source: https://www.unipol.org.uk/acs2018.aspx

5. Source: https://www.timeshighereducation.com/student/best-universities/best-universities-uk

6. Source: Oxford Economics, PMA, DWS, http://www.quintain.co.uk/

7. Source: DWS report “Wohnimmobilienportfolio Vita Student an sechs Standorten in Großbritannien“, August 2019

8. Source: UNESCO Institute for Statistics 2019

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